Huntington National Bank 2007 Annual Report Download - page 23

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reserves, as well as the recognition of federal tax loss carry backs. The 2005 effective tax rate of 24.2% was favorably
impacted by a combination of factors including the benefit of a federal tax loss carry back, partially offset by the net impact
of repatriating foreign earnings.
– $56.8 million, or 6%, increase in net interest income, reflecting a 7% increase in average earning assets, as the net interest
margin of 3.29% declined 4 basis points from 3.33% in the prior year. The increase in average earning assets reflected 7%
growth in average total loans and leases, including 12% growth in average total commercial loans and 3% growth in average
total consumer loans, and a 15% increase in average investment securities. Growth in earning assets was positively impacted
by the acquisition of Unizan on March 1, 2006.
– $16.1 million decline in provision for credit losses, reflecting overall net improvement in our credit risk performance as
reflected in a decline in our allowance for credit losses as a percent of period end loans and leases to 1.04% at December 31,
2006, from 1.10% at the end of 2005.
Partially offset by:
– $71.2 million, or 11%, decline in non-interest income. Contributing to the decrease was an $89.9 million expected decline
in operating lease income, and a $65.1 million increase in securities losses, reflecting the impact of a balance sheet
restructuring in late 2006. Partially offsetting these negative factors were increases in several other components of non-
interest income, primarily due to the Unizan acquisition.
– $31.2 million, or 3%, increase in non-interest expense, reflecting increases in several components of non-interest expense,
primarily related to the acquisition of Unizan.
Compared with 2005, the ROA for 2006 was 1.31%, up from 1.26%, and the ROE was 15.7%, down slightly from 16.0%.
2006 net income was impacted by a number of significant items, the largest of which were (1) the acquisition of Unizan on
March 1, 2006, (2) a reduction in the provision for income taxes, and (3) a balance sheet restructuring, undertaken to utilize the
excess capital resulting from the reduction of the provision for income taxes (See “Significant Items”).
Basis of Presentation
SIGNIFICANT ITEMS
Certain components of the income statement are naturally subject to more volatility than others. As a result, readers of this report
may view such items differently in their assessment of “underlying” or “core” earnings performance compared with their
expectations and/or any implications resulting from them on their assessment of future performance trends.
Therefore, we believe the disclosure of certain “Significant Items” affecting current and prior period results aids readers of this
report in better understanding corporate performance so that they can ascertain for themselves what, if any, items they may wish
to include or exclude from their analysis of performance, within the context of determining how that performance differed from
their expectations, as well as how, if at all, to adjust their estimates of future performance accordingly.
To this end, we have adopted a practice of listing as “Significant Items” in our external disclosure documents, including earnings
press releases, investor presentations, reports on Forms 10-Q and 10-K, individual and/or particularly volatile items that impact the
current period results by $0.01 per share or more. Such “Significant Items” generally fall within the categories discussed below:
TIMING DIFFERENCES
Parts of our regular business activities are naturally volatile, including capital markets income and sales of loans. While such items
may generally be expected to occur within a full year reporting period, they may vary significantly from period to period. Such
items are also typically a component of an income statement line item and not, therefore, readily discernable. By specifically
disclosing such items, analysts/investors can better assess how, if at all, to adjust their estimates of future performance.
OTHER ITEMS
From time to time, an event or transaction might significantly impact revenues or expenses in a particular reporting period that
are judged to be one-time, short-term in nature, and/or materially outside typically expected performance. Examples would be
(1) merger costs as they typically impact expenses for only a few quarters during the period of transition; e.g., restructuring
charges, asset valuation adjustments, etc.; (2) changes in an accounting principle; (3) one-time tax assessments/refunds; (4) a large
gain/loss on the sale of an asset; (5) outsized commercial loan net charge-offs related to fraud; etc. In addition, for the periods
covered by this report, the impact of the Franklin restructuring is deemed to be a significant item due to its unusually large size
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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED